Why You Should Avoid Filing For Bankruptcy Unless You Have To
May 23, 2008
Bankruptcy is one way of getting out of paying your debts, but there are serious consequences to taking this route. It should only be considered when you have explored all other options and still cannot find any way of repaying the money you borrowed, either to a bank or with a revolving charge account.
You will have to give up all of your possessions, which includes your home and furnishings, any valuable jewelry or artwork, your vehicle and any boats or other leisure equipment. Essentially you are left with only your clothing.
When you stop making your regular payments, your creditors will try every means possible to collect what you owe. This is usually a very stressful time when you receive phone calls, letters and even visitor from collection agencies.
You can petition the court to take bankruptcy action, but a creditor can do so as well if you owe more than £750 and have not contacted the creditor to make other payment arrangements and if the debt is unsecured. Therefore, when you receive a notification about this from the court, you should make every effort to make payment or arrangements for lower payments.
Once a petition for bankruptcy has been made, by you or ma creditor, it is published in the London Gazette, so if anyone you know reads this newspaper, your name will be the topic of conversation.
It is impossible to take bankruptcy action or have it filed against you and keep it a secret. Sometimes, the bankruptcy may also be advertised in your local newspaper.
The court will appoint an official to deal with your case. From that point on you do have control of your finances and all your bank accounts will be seized.
The official will conduct an investigation in your financial dealings for the period preceeding filing bankruptcy to determine if your were involved in any criminal activity. This involves make enquiries into your pension funds, mortgage dealings, insurances and even your landlord.
You will have to provide a full list of your assets and the derails of every bill that you owe. All of your papers concerning bank accounts, insurance policies, deeds to property are then taken over by this official. You will have to stop using your bank account and any credit cards immediately.
If you do apply for a loan to help tide you over, you will not be allowed to borrow any more than £500 without disclosing the fact that you are going through bankruptcy proceedings. During this time, you will not have to make any payments to your creditors, as the court will handle this and make the payments from any monies that you have.
If you have a mortgage on your home and have been making regular payments, you will not be able to do so while the bankruptcy proceedings are taking place. This may place your account in default, at which time the lender does have the right to foreclose and sell the home to get back the money you borrowed.
Since payments to service providers, such as telephone and electricity companies, is also suspended during this time. When you do reinstate the service, you may have to make a high deposit in order to have the service, which will then be used to make any payments you may miss in the future.
If you own your own business, the first action will be to close down the business. This will leave you without any means of making a living. If you work for another employer, the wages you earn, the court may order you to make payments toward your creditors from these earnings, which will probably not leave you with very much to live on.
Bankruptcy may also affect your employment as remaining solvent may be a condition of your job. You will not be permitted to hold any political office after you have filed for bankruptcy.
This means that when you are facing financial troubles and are unable to meet your payments, you do have to take other measures before reaching this point. This includes becoming involved in a debt management plan. Under such a plan a counselor will help you find ways of managing your debt and repaying your creditors.
In some of these plans, the counselor will contact the creditors. You can also take out a debt consolidation loan, which will combine all of your debts into one, giving you one monthly payment that is often lower than the combined payments of all your debts.
You can also contact the creditor to make arrangements for lower payments or an agreement in which you don’t make any payments for a specified period of time but will repay the loan in full at the end of that period. You should do whatever you have to in solving your financial problems rather than file for bankruptcy.
Written by Peter · Filed Under Debt
I went through the experience of bankruptcy a few years ago. I agree with several of the points raised, it’s an extremely stressful and distressing experience; however for myself and many others it is a last resort.
Some of the points made in this article differ to my experience. Yes it is an extremely rigorous process and if you have assets such as a house, you stand to lose them. however, you may be able to keep certain items if for example they are essential for your work (I was allowed to keep my car which was, crucially, an old banger with no re-saleable value).
My experience was that I was not widely publicly named and shamed, did not lose my job and my landlord did not have to learn of it. The official receivers have a job to do but I believe they do not wish to see people destitute, out of work or living on the streets. Prior to applying for bankruptcy I was receiving stressful and invasive communications from debt collection agencies at work and home, which ceased once the bankruptcy process began - this was one of the biggest reliefs. [note: the financial ombudsman's guidelines give information about what is and isn't acceptable for debt collection agencies to do].
It was a profoundly difficult decision and an experience which I would warn people not to go into lightly, it is far from an easy option. However, I now consider myself extremely lucky to be debt-free and feel profoundly relieved to be on the other side of this experience. Suffice to say it’s an experience I will never repeat.
I do think it’s important that balanced information is given to people about this. I received very helpful information from the Consumer Credit Counselling Service prior to bankruptcy, and the official Insolvency Service’s publications give all the information required. Also, there is now a forum on Moneysavingexpert about bankruptcy where people can share experiences and information in a non-judgemental place.
The officials I came into contact with at the court and at the official receivers office did their jobs soberly, thoroughly and efficiently but were humane and respectful at all times. It’s a hard enough process without needing to feel like a pariah as well.
Nonetheless, a good article to show someone if you wanted to put them off bankruptcy and felt they had other viable options or were entering into it lightly!
all good wishes,
bd